What is the M&A Environment for 2018?

By Generational Equity


On an annual basis, Ernst & Young (EY) does a survey of planned M&A activity for corporations, equity firms, and other buyers to determine what the ensuing 12 months may look like. As expected, 2018 is predicted to be a continuation of what is a seller’s market that we have been experiencing in M&A in recent years.

This is how EY put it:

Looking ahead, a positive economic outlook, low borrowing costs and an abundance of “dry powder” waiting for deployment by private equity firms are all factors that should support continued deal-making in 2018, according to a survey by EY of senior executives from across the globe.

The firm’s poll showed 56 percent of respondents expect their company will actively pursue deals during the next 12 months. That is in line with prior results from the previous two years.

Note the adverb used prior to “pursue” to describe deal-making plans for 2018: ACTIVELY!

Business buyers that we talk to regularly are of the same mindset; many are planning to aggressively pursue transactions this year for many of the reasons outlined above. In addition, new tax legislation passed late last year will generate substantial cash for buyers to use for a variety of uses.

Presumably, mergers and acquisitions will be a key tactic allowing firms to obtain market share, gain new customers, get access to new technologies, and expand geographically, among a myriad of other purposes.

According to EY, another trend to lookout for in 2018 will be increased competition between buyer types. Here is their analysis:

Among the themes to watch: Corporate executives anticipate further competition in 2018 from private equity buyers for quality assets. “Private equity is likely to be one of the biggest stories in M&A over the next 12 months, with corporates being challenged for assets more than during the past five years,” EY said.

The firm’s survey found 60 percent of those polled expect more competition for assets, while half see private equity as the top challenger.

Bottom line: This is great news if you are the owner of a privately held company today. The next 12-18 months may be the best time in years to dust off (or create) your exit plans. Even if you are not sure exactly when you want to exit, or what the M&A process is, it is a great idea to find out what your business is worth now.

This will allow you to begin planning with your wealth advisor what time would be best for you to exit, based on how much you want/need to receive when you monetize your company via an M&A transaction of some type (either full or partial sale).

Keep in mind that selling a business to an optimal buyer is a process NOT an event. This means that getting started on your exit plans early is critical because it will allow you to build your business in a thoughtful, strategic manner, enhancing its valuation over time.

We highly recommend to business owners that they connect with an M&A advisory firm early so that by the time you want to exit, the company is prepared.

And since 2018 is going to be at least the fourth year of the current seller’s market, and these don’t last forever, it is a prime time to begin your exit process!

If you would like to learn more, contact our team at Generational Equity. We have been one of the leading lower middle market M&A firms for the past decade-plus. Our services are 100% focused on helping owners of privately held businesses exit their companies for the maximum value possible.

We spend time preparing our clients for a successful exit, not just the company itself, but also the owners and spouses/families. So, when the 11th hour of negotiations comes, all parties understand what the M&A process is.

And special thanks to EY for surveying the landscape and Merrill Corporation for reporting it to us.

By Carl Doerksen, Director of Corporate Development at Generational Equity.

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